Canada: Lessons From The Trenches: Tips And Traps For The Wary

Time is of the Essence - Again

In 1990, Paul Perell wrote the following introduction to his
article "Putting Together The Puzzle Of Time Of The
Essence" for The Canadian Bar Review:

The law of time of the essence presents conflicting authorities
and ancient case law to be revisited and explained in a modern
context. There have been advances and reversals in the
jurisprudence and some unasked and unanswered
questions.1

Approximately 16 years after his article, Paul Perell, as a
Superior Court Judge once again dealt with time of the essence
issues in Shapiro (c.o.b. ISR Ent. in Trust) v. 1086891 Ontario
Inc.2 where he referred to Remedies and the
Sale of Land (2nd ed) (Toronto: Butterworths, 1998) which he
co-authored with B.H. Engel.

Recent case law puts the rule perhaps more simply by asserting
that a party must be acting in good faith to rely on time of the
essence.

The rules of time of essence are, however, not simple and there
are still "unasked and unanswered questions." The case of
Union Eagle Ltd. v. Golden Achievement Ltd.,3
dealt with one of these issues. The Union Eagle case was
affirmed in Ontario by 1473587 Ontario Inc. v. Jackson
[2005] O.J. No. 3145. The Privy Council case involved a failed
condominium closing or HK$4.2 M. The seller wanted to end the
agreement because it believed the property value had increased
significantly. According to Lord Hoffmann "The only
unusual feature was that the purchaser tendered payment of the
purchase price ten minutes after the time for completion had
passed". In fact, the seller sold the condominium six
years later for HK$19.5 M. The seller also retained the deposit of
HK$400,000.00 funds which were forfeited by the seller. Lord
Hoffman concluded as follows:

The fact is that the purchaser was late. Any suggestion that
relief can be obtained on the ground that he was only slightly late
is bound to lead to arguments over how late is too late, which can
be resolved only by litigation. For five years the vendor has not
known whether he is entitled to resell the flat or not. It has been
sterilised by a caution pending a final decision in this case. In
his dissenting judgment, Godfrey J.A. said that this case
"cries out for the intervention of equity". Their
Lordships think that, on the contrary, it shows the need for a firm
restatement of the principle that in cases of rescission of an
ordinary contract of sale of land for failure to comply with any
essential condition as to time, equity will not intervene.

In the Jackson case, 147358 Ontario, known as Loblaw,
had entered into an agreement to purchase 12 acres of a 56 acre
parcel from the vendors for $1,800,000.00 based on a price of
$150,000.00 per acre. A deposit of $75,000.00 was to be paid within
five days of the execution of the agreement. The agreement provided
that "time in all respects shall be of the essence of this
Agreement". Through inadvertence, Loblaw did not pay the
deposit until seven days after the date stipulated in the
agreement. The vendors treated the agreement as discharged and
negotiated a new agreement with another party to sell the entire
parcel. The court found that Loblaw's late payment of the
deposit was a breach of an essential term of the agreement that
entitled the vendors to treat the contract as discharged and
released the vendors from their obligations. To Rutherford J,
"Certainty and precision is important in language used in
documents of business and commerce." To him the law
applicable to this case was clear "as it ought to
be". His discussion was affirmed by the Court of
Appeal.

In his annotation to the Court of Appeal Jackson
decision, Jeffrey Lem, as he then was, wrote, "What is
absolutely certain is that Union Eagle has now officially
landed in Canada and future Canadian Courts considering 'time
of the essence' will no longer be able to do so without a
thorough treatment of the rule in Union
Eagle."4

Ironically, however, years later in the case of Reserve
Properties Limited v. 2174689 Ontario Inc. 2015,5
it was Shoppers (after being purchased by Loblaw) which sought to
evoke a time of the essence provision to terminate a contract
because of a late deposit payment by the purchaser (Sobeys). In the
Reserve case, the purchase missed the deadline for a
$75,000.00 deposit payment and having missed the payment Shoppers
treated the contract at an end.

In this case, Justice Myers held that taking into consideration
all the circumstances, the breach was not fundamental and did not
give Shoppers a right to terminate the agreement.

Ready, Willing & Able. Tender and Anticipatory Breach

In order to rely on a time of the essence provision, the party
must show that it is ready, willing and able to close on the agreed
date. A party may establish this readiness by a tender of the
moneys or the documents required to close on the stipulated date.
Tender constitutes evidence that the tendering party is ready,
willing, and able to close the transaction and entitled to pursue
its remedy against the defaulting party. If an agreement does not
specify an hour or place for closing, a purchaser could properly
tender on a vendor any time before midnight.6

Tender is not necessary when a party, by its conduct, has
refused performance of the contract. Repudiation from conduct may
be implied if a reasonable person would be led to believe that the
defaulting party will not perform or will be unable to perform at
the stipulated time.

A party seeking to rely on repudiation implied from conduct must
show that the party in default has so conducted himself as to lead
a reasonable man to believe that he will not perform or will be
unable to perform at a stipulated time.7

When there is an anticipatory breach the innocent party does not
need to tender as it would be merely a "futile
gesture".

A Requisition/Title Insurance/and Time is of the Essence

Thomas v. Carreno8

The Purchaser entered into an Agreement of Purchase and Sale
(the "Agreement") for a residential
property for $1,500,010 and paid a deposit of $100,000, in trust,
pending completion or other termination of the Agreement. Closing
was to take place by 6:00 p.m. on July 8, 2011.

The Purchaser's lawyer, after discovering the existence of
an open building permit, sent the Vendor's lawyer a requisition
letter requisitioning a report from the City of Toronto closing the
outstanding building permit.

Although the Vendor's solicitor took steps to close the
permit, he became aware that he would not be successful in closing
the open permit before the closing date.

Facsimile letters and telephone calls were exchanged between the
two lawyers dealing with the requisitions. Although the
Vendor's solicitor suggested a week's extension of the
closing or closing the transaction with a substantial holdback, the
Purchaser's solicitor made it clear that she was not willing to
close the transaction if the building permit remained opened nor
were her clients agreeable to an extension of the July 8th closing
date.

The Agreement contained what is now considered a typical boiler
plate clause which provided that a requisition could be answered by
the "seller obtaining insurance (Title Insurance) in
favour of the buyer".

As a solution to the open building permit issue, the
Vendor's solicitor contacted Stewart Title which agreed to
title insure over the open building permit if the Vendor's
lawyer held back $100,000 out of the closing proceeds pending the
closure of the building permit.

Once the Vendor's solicitor obtained this commitment to
insure from Stewart Title, he faxed a letter to the Purchaser's
solicitor advising her that Stewart Title was prepared to provide
title insurance for the Purchaser and insure over the permit issue.
The fax was sent at 3:55 p.m.

Although the Purchaser's solicitor's fax machine
received the fax, the Purchaser's solicitor thinking that the
deal was at an end dealt with other closings. She actually sent a
fax at 4:01 p.m. that same day repeating that her client would not
accept title while the building permit was open nor would there be
an extension of closing and that the Agreement would terminate at
6:00 p.m.

The transaction did not close.

After the Vendor's solicitor refused to return the $100,000
deposit, the Purchaser brought an application for the return of the
deposit.

One of the issues dealt with by Lederman J. was whether a
commitment from Stewart Title to insure over the building permit
fell within the Vendor's obligation "to obtain" title
insurance.

Lederman J. concluded that it was sufficient to obtain Stewart
Title's commitment and communicate that commitment to the
Purchaser's solicitor. Although the Purchaser's solicitor
assumed that by 4:00 p.m. nothing further could be done by the
Vendor before closing, Lederman J. specifically addressed the role
of the Purchaser's solicitor by saying that "she had a
duty to monitor that situation until the deadline".

41. Both lawyers, being busy with other transactions that
were closing, appear to have left this matter to the last minute;
however, there was an obligation on both sides to act in good faith
and do what was necessary within the time frame set out by the
Agreement of Purchase and Sale.9

The Court of Appeal dismissed the appeal and in brief reasons
agreed with Lederman J.'s conclusion that the requisition in
relation to the building permit could be "satisfactorily
answered by a commitment to provide title insurance as contemplated
by the Agreement of Purchase and Sale".

7. As the application judge found, the vendors were ready to
close and in a position to do so prior to 6:00 p.m. until which
time the Agreement of Purchase and Sale was still in full force and
effect.10

Reinstate Time of the Essence

When neither party is in a position to close on the closing date
either party may reinstate time of the essence by serving a notice
upon the other party, fixing a new date which must be reasonable,
and stating that time is to be of the essence with respect to the
new date.

In Fancsali et al. v. Brodi et al.,11
although the parties purported to tender on the closing date, the
purchaser did not have the closing funds available and the vendor
did not have the requisitioned discharge of mortgage available.
Neither side could therefore close or make proper tender. The
solicitor for the vendor was then able to obtain the discharge of
mortgage and, about 2 months after the original closing date, sent
out a notice setting out the new closing date at 5 weeks from the
date the notice was sent out. The purchaser took the position that
as the original closing date had passed the transaction was at an
end and the purchaser was entitled to the return of the
deposit.

Rosenberg J. confirmed that when neither party was ready to
close on the contractual date for closing, it does not put an end
to the contract. Non-compliance with the time is of the essence
provision can only be set up as a defence by a party who was
himself ready, willing and able to close on the agreed date. In the
Fancsali case the Court held that as neither party was
ready to close on the closing date, either party had the right to
send out a notice. The Court held that the notice was sent out
within a reasonable time from the closing date and the closing date
set out in the notice was reasonable.

The Deal Didn't Close. Neither Party was at Fault.

Multani Custom Homes Ltd. v. 1426435 Ontario
Ltd.12

Arrell J. introduced his decision as follows:

1. The plaintiff agreed to purchase property owned by the
defendant. They entered into an agreement of purchase and sale
where clearly time was of the essence. The closing date was
extended. For a number of reasons, none of which were the fault of
either party, the deal was unable to close on that date. It was
able to close the next afternoon, however, the defendant had by
that time taken the position that the deal was off and refused to
close.13

The defendant vendor brought a summary judgment application
seeking a dismissal of the purchaser's claim.

The transaction did not close because of unforeseen difficulties
in securing the mortgage funds on the closing date; there were
difficulties with obtaining additional title insurance policies,
the courier's office was closed and there were other technical
difficulties which led Arrell J. to the conclusion that the failure
to close the transaction was a result of a series of events beyond
the control of the purchaser.

Although Arrell J. made a finding of fact that the vendor was
willing and able to close the transaction on the date set for
closing, he questioned the vendor's refusal to close once that
date had expired. He stated, "No evidence has been led as to
why it would not close the following day" and "there was
no evidence that the vendor would have suffered any prejudice in
closing the transaction the next day." Were these questions
even relevant?

Arrell J. refused to dismiss the plaintiff purchaser's
action because there were triable facts that went to the issue of
good faith. The Court was required to hear evidence on those issues
in order that a finding of fact and credibility can be made on the
issue of good faith. In his reasons Arrell J. stated:

16. A vendor is under a duty to act in good faith and to take
all reasonable steps to complete the contract. Where a vendor acts
contrary to good faith in its performance of the contract, the law
precludes the vendor from relying on the "time of the
essence" provisions to terminate the contract. Leung v.
Leung (1990), 75 O.R. (2d) 786 (Ont. Gen. Div.) at para.
43).14

So the question remains – What is late? What is too
late?

The Exclusionary Clause

The general rule is that Courts give effect to exclusionary
clauses and to limitation and waiver of liability provisions in a
negotiated agreement.

Although at one time Courts would refuse to enforce an exclusion
or limitation of liability provision in circumstances where to do
so would be unconscionable, unfair, unreasonable or otherwise
contrary to public policies, the Supreme Court of Canada in
Tercon Contractors Ltd. vBritish Columbia (Minister
of Transportation)15 has limited the Courts' refusal to
enforce an exclusion of liability provision to unconscionability
and public policy.

Entire agreement clauses or limitations of liability clauses in
contracts will exclude liability for negligent misrepresentations
that were said to have induced one party to enter into the
contract.

In Hayward et al. v. Mellick et al.16 the
plaintiff sued the defendant for damages for negligent
misrepresentation for misrepresenting the amount of workable land
that was available on the farm. The listing agreement described the
land as amounting to 95 acres containing 65 workable acres. There
was no reference in the agreement of purchase and sale to the
amount of workable acres. The agreement contained an exclusionary
clause. The Trial Judge and the Court of Appeal held that the
representation as to the amount of workable land was a negligent
misrepresentation and was excluded by exclusionary clause.

Gift/Loan/Sham

A. (A.) v G. (Z.)17

"It is alleged the mortgage was a sham. What is the meaning
of sham?"

The following are findings made by Kruzick J.:

98. ...the lawyer who prepared the mortgage, found himself in a
difficult position. He knew the husband, the wife and the father.
From this testimony, I conclude he was uncomfortable when he agreed
to act for the three parties. Because he knew them and acted for
them on other transactions, he was not at ease in dealing with this
mortgage; but did so notwithstanding better judgment in
hindsight.18

23. The father maintains he advanced well in excess of $800,000
to the husband and wife once the old house on their property was
demolished for the construction of the new matrimonial
home.19

50. The Father's evidence at trial was that he always
intended the mortgage to be repaid and that he was aware he had 10
years to collect on the debt, given the provisions of the Real
Property Limitations Act, R.S.O. 1990, c. L.
15.20

100. In the end, there are compelling reasons to find the
mortgage to be a sham. The evidence does not satisfy me as to
common intention. The mortgage was, I find, put in place to trick
third party claims, or to recover only from the wife if the
marriage failed.21

See also Crepau v. Crepau22.

The Court held that although the mother signed the gift letter,
she did so only to assist her son obtaining the mortgage to
facilitate the purchase of the property. Without the gift letter
Scotiabank would not advance the funds to close the deal. The court
therefore found that the mother did not have the intention to gift
the $30,000.

Fraudulent Conveyances and Certificate of Pending
Litigation

The Bank of Nova Scotia v McCallen23

The following are findings made by Master R.A. Muir:

3. The Property was purchased by Donald and the defendant
Rosemary McCallen ("Rosemary") on July 30, 1999. Title
was taken in both of their names as joint tenants. In the fall of
2013 Donald attended a seminar at which he received advice that
"anyone who is in any entrepreneurial business should not have
title to their house in their own name". On November 8, 2013,
title to the Property was transferred from Donald and Rosemary to
Rosemary alone for no consideration.24

8. I accept the defendants' evidence that the corporation
and Donald were current with all creditors at the time of the
transfer of the Property. However, there would appear to be ample
authority to support a finding of a fraudulent conveyance in
circumstances where the defendant's intention in making a
transfer was to put his assets out of reach of future creditors.
See Indcondo Building Corp. v Sloan, 2014 ONSC 4018 (Ont.
S.C.J.) at paragraph 48. The party attacking the transfer need not
be a creditor at the time of the transfer.

10. ...the balance of convenience favours the plaintiff. A CPL
will protect the asset from being transferred or encumbered while
this action proceeds.

Chai and Dabir25

Specific Performance and the Return of the Deposit

Although the facts indicated that this was an appropriate case
to grant specific performance, the purchaser lost her right to
claim specific performance by reason of accepting the return of the
deposit.

Justice Stinson referred to Justice Perell's article
"Common Law Damages, Specific Performance and Equitable
Compensation in an Abortive Contract for the Sale of Land: A
Synopsis" (2011), 37 Advocates Quarterly 408 as
follows:

A purchaser who demands the return of his or her deposit is
electing to end the contract and will not have a claim for specific
performance.26

In support of this proposing Justice Perell cites, among other
authorities, MacNaughton v. Stone, [1949] O.R. 853 (Ont.
H.C.), a decision of Chief Justice McRuer. In that case the
following explanation was given for this principle (at para.
16):

The request for return of the deposit is not consistent with an
intention to treat the contract as valid and subsisting and to
bring an action for specific performance if the contract was not
performed according to the terms thereof. The plaintiff, having
elected to treat the contract as at an end by demanding the return
of the deposit, could not by himself revive it when the deposit was
not returned.27

Footnotes

1 Paul Perell, "Putting Together The Puzzle Of Time Of
The Essence", (1990), 69 Can. Bar Rev. 417.

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